Pimco Says Investors to Focus on Asian Bonds on Rate Cuts

By Tanya Angerer -
Oct 17, 2012

Investors should focus on Asia’s
local currency debt as China’s slowdown may push neighboring
countries to cut rates, according to Pacific Investment
Management Co., the manager of the world’s biggest bond fund.

Local-currency bond sales in Asia jumped 25 percent to
$188.4 billion this year compared with the same period in 2011,
according to data compiled by Bloomberg. Pimco more than doubled
its team of portfolio managers and credit analysts in Singapore
and Hong Kong to 13 over the past 18 months, Ramin Toloui, the
global co-head of emerging markets portfolio management, said in
an interview in Singapore on Oct. 16.

“One big reason why Asian local currency bonds are of
interest is because of the slowdown in China, which may in turn
affect monetary policies in nations it’s closely linked to,”
said Toloui, 38. “Asian and global emerging market local-
currency sovereign bonds is an asset class where the combination
of sluggish macro-economic fundamentals and investor
reallocations should benefit performance.”

Fund managers from Aberdeen Asset Management Plc (ADN) to Western
Asset Management Co. are investing in Asian local-currency bonds
as central banks in Korea, Pakistan and Thailand trim interest
rates to bolster growth. Emerging market bond fund inflows
swelled to more than $41 billion this year after reaching a 35-
week high in the five-day period to Oct. 10, EPFR Global said in
an e-mailed statement Oct. 12.

The pace of expansion in the world’s second-biggest economy
slowed for a seventh quarter to 7.4 percent in the three months
ending Sept. 30 from a year earlier, the National Bureau of
Statistics said in Beijing today.

Investors are “paying more attention to Asian local-
currency bonds because they’ve rallied less than U.S. dollar
securities,” Toloui said. Newport Beach, California-based Pimco
had $1.82 trillion under management as at the end of June.

The Singapore dollar, Philippine peso and South Korean won
are among the 10 best-performing emerging market currencies in
the past year, Bloomberg-compiled data show. Western Asset
increased its holdings of South Korean bonds above the level
suggested by the benchmark it tracks as the nation’s fiscal
health improved, Chia-Liang Lian, head of investment management
for Asia excluding Japan, said in an interview last week.

Higher Yields

Aberdeen favors Philippine and Indonesian local-currency
bonds because of their high yields, Anthony Michael, the firm’s
head of Asian fixed-income, said on Oct. 15 at a forum organized
by the Trade Association for the Emerging Markets in Singapore.

Pimco is also expanding headcount in emerging markets
outside of Asia, setting up its first office in Latin America
with a planned team of about 15 in Rio de Janeiro, Alec Kersman,
a senior vice president and head of Latin America and Caribbean
operations, said earlier this month.

Pimco began operations in Asia in 1996 and has offices in
Hong Kong, Singapore and Japan. Asia accounts for more than 10
percent of the company’s third-party assets as of June. Toloui
relocated to Pimco’s Singapore office from California in
January.

“You need to have the resources in Asia not only to find
the attractive assets but also to establish relationships with
key pools of capital,” Toloui said. “For any global asset
manager, that’s critical.”